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  • 1. Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011 Financial Intermediation by Banks and Economic Growth in Nigeria, 1990 – 2008 Acha Ikechukwu A. (Corresponding author) Department Of Banking and Finance, University of Uyo, Uyo, Akwa Ibom State, Nigeria Tel: 234-08036057080 E-mail: achaiyke@yahoo.co.ukAbstractThis study investigated the role banks play in economic growth. It used bank deposits and bank credit to the privatesector as variables for bank intermediation and real gross domestic product (RGDP) to proxy economic growth. TheRegression of RGDP as dependent variable against bank deposit and credit confirmed that banks through theirintermediation function contribute to economic growth in Nigeria. The paper therefore recommends that banksshould be encouraged to expand credit to the private sector.Keywords: Bank, Financial Intermediation, Economic Growth, Savings, Credit1. IntroductionGoing down memory lane one discovers that initial indigenous banks were founded to address the perceiveddiscrimination against Nigerian borrowers by foreign banks. The main objectives of these indigenous banks were toencourage local investors, support budding entrepreneurs and hence foster economic growth. Many of these earlyindigenous banks failed, hindering their contribution to the economy.Several reasons have been adduced for the high rate of failure by these early indigenous banks. One of the mostcompelling ones is that they operated in an unregulated banking environment. This thinking must have informed theestablishment of the Central Bank of Nigeria (CBN) with the principal mandate of regulating the banking industry.Looking at the rules, guidelines policies and statements issued by the CBN one is convinced that it shares in thebelief of the early indigenous banks that banks should contribute to economic growth. Guidelines such as thoseprioritizing agriculture and manufacturing for credit purposes (the Agricultural Credit Guarantee Fund Scheme{ACGFS} and Microfinance Fund), and policies like deregulation and consolidation are all aimed at positioning thebanks as engines of economic progress.The policies of deregulation and consolidation of the financial sector are based on the thinking of the financialrepression school. The school holds that regulations constrain the ability of financial institutions to optimallycontribute to economic growth. They therefore suggested the liberalization of the economy to enable theseinstitutions perform this growth function. On the other hand, the main idea behind consolidation was the increase thesize of the Banks. This was based on the thinking that with increased size these banks will become stronger, resilientto shocks and capable of funding the real sector and by extension enhance economic growth.Apart from these compulsory regulatory directives and policies, aimed at ensuring banks contribution to theeconomy, banks are known to engage in financial intermediation. Banks mobilize funds from the surplus economicunit and make same available to deficit unit as loans in ordinary course of their business. Through this granting ofloans banks are able to create credit, expand the economy and finance investment.Inspite of this seeming obvious link between banks and economic growth, economists remain polarized in theiropinions. On one hand are those who strongly hold that banks through their intermediation activities contribute toeconomic growth (Gerschenkron, 1962, Mckinnon, 1973, Shaw, 1973, Levine, 1997, Montiel, 2003) and on theother hand are others that hold a contrary view (Lucas, 1988, Dornbusch and Reynoso 1989:204, Stiglitz, 1994 &2000).This study is therefore necessitated by the compelling arguments by the opposing economic camps. The obvious tiltof our policy makers (including the CBN) towards accepting the position that banks contribute to economic growth 129
  • 2. Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011unquestioningly and more importantly the fact that none of these studies used Nigerian data to arrive at itsconclusion further buttresses the need for this study. This study intends to fill this gap. This study therefore investigates the link between the intermediation (savings mobilization and lending) activities ofbanks and economic growth in Nigeria. Its main purpose is to assess the relationship between banks’ grossdeposit/credit to private sector and growth of the Nigerian economy.To achieve this objective the following research questions are raised: i. As part of their intermediation role are Nigerian banks encouraging people to save? ii. Are they applying the mobilized deposits in funding the private sector? iii. Is the economy growing and are Nigerian banks contributing to this?The hypotheses to be tested in this study are presented in their null form as: i. Savings mobilized by Nigerian banks are not significant considering the amount of currency in circulation. ii. Banks are not extending significant portion of their loan portfolio to the private sector. iii. Nigerian banks are not making any significant contribution to economic growth.A timeframe of 1990 to 2008 has been used for this study. This period is seen as long enough to enable the drawingof the necessary inference and arriving at a conclusion. Only deposits and credits advanced by Deposit MoneyBanks (DMBs) are considered in this study. Deposits of microfinance banks, primary mortgage institutions andother deposit taking institutions are not taken into considerations. On the other hand the real gross domestic product(RGDP) is used as a determinant of the size of the economy.This study is organized in five sections. The first of these is this introduction. Following the introduction is thetheoretical framework, under which concepts and theories are reviewed. The third section examines the researchmethodology used in this study. In the fourth section, data is presented and analyzed and in the fifth, conclusion isdrawn and recommendations are made.2. Theoretical FrameworkTo explain economic growth, several models have been developed by economists. One of such is the Harold-Domarmodel on which this study is hinged. This model holds that the impact of money in an economy depends on itsability to influence interest rate. The rate of interest in turn influences the rate of investment which in turn influencesnational income. The model postulates that changes in national income depend linearly on change in capital stock orinvestment. The assumption is that investment is a function of savings, they conclude that economic growth willproceed at the rate which society can mobilize savings coupled with the productivity of investment (Levine,1997:693, Azege, 2009:7, Masha, et al, 2004:10). Theoretically therefore, savings is seen as positively impacting oneconomic growth through its positive influence on capital formulation.The emphasis laid on savings by the Harold-Domar growth model preempts a conclusion that banks intermediationfunction leads to economic growth. This thinking is reinforced by the McKinnon-Shaw hypothesis that economicgrowth is dependent on bank intermediation. To them, the important role banks play in growth can be confirmed bycomparing repressed financial systems and liberalized ones. They conclude that liberalization leads to increased realinterest rate which acts as an incentive for people to save and invest (Tenant, 2006:3, Gemech & Struthers, 2003:2).This theoretical framework which traces the path to economic growth through the mechanism of savings andinvestment is adopted by this study. This does not preclude the existence of other opposing strands of theories. Forinstance, the Solow growth model opposed the Harold-Domar model. It holds that any increases in growth resultingfrom increase savings is only temporary as only technological progress can assure sustained growth (Solow, 1957).Also, the Mickinnon-Shaw hypothesis is not without opposition. The opposition asserts that increase in savings doesnot automatically lead to an increase in investment, as investment also depends on expectation of future demand(Tenant, 2006:4, Stiglitz, 1994 & 2000). Tenant further argued that increased deposit rates, which liberalizationengenders leads to increase in propensity to save causes aggregate demand to decrease and precipitates a fall inoutputs, profits and investments. Emphasizing the absence of connection between banks and economic growth,Diaz-Alejandro (1985) linked financial liberalization to financial crises.3. Research Methodology 130
  • 3. Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011This study aims at testing the relationship between financial intermediation and economic growth in Nigeria. Forfinancial intermediation, the two sides of the intermediation equation are considered, that is, deposit and credit.Deposits are seen as including current, fixed and savings deposits in banks while credit to the private sector willstand in for credit. On the other hand, RGDP is used to represent the size of the economy.This study adopts mainly secondary data analysis approach. Despite this, some elements of exploratory research arealso used especially in the section on review of literature. Data is mainly sources from the Central Bank of Nigeria(CBN). The study used both correlation and regression analysis.The study suffers from the following limitations:  Exclusion of deposits and credits of other financial institutions.  Exclusion of credit to government.In spite of these limitations it is believed that the conclusion of this study should be reliable. This is because banksdominate in the financial system and loans to government are used mainly for recurrent expenses not capitalformation.A three step approach is adopted in assessing the relationships. The first tests the ability of banks to mobilizedeposit. The second investigates the portion of banks’ loans that are directed to the private sector. The third assessesimpact of deposits and credit to private sector on the economy.(i) Banks ability to mobilize deposits. To do this it is assumed that money is either saved or held as cash by individuals. Therefore currency outside banks(COB) is influenced by deposits (DPS). Deposit is interpreted to cover all accounts held by customers (current,savings and fixed) plus cash held by banks (M 2). Hence it is expected that an inverse relationship should subsistbetween deposit in the banks and cash balances held outside the banks. The relationship is denoted thus: DPSt = f(COBt) ………….. (1a)The functional relationship can then be shown as: DPSt = a0 + a1 COBt + e ………….. (1b)(ii) Banks and Credit to private sector.To examine the extent of bank loans to the private sector, the relationship between total bank credit to the system(TBC) and banks credit to the private sector (CPS) is considered. The strength of this ratio is instructive. TBCt = f(CPSt) ………….. (2a)Functionally we state TBCt = a0 + a1CPSt + e ………….. (2b)(iii) Banks intermediation and economic growth.RGDP is used to represent growth in the economy while banks credit to private sector (CPS) and deposit in banks(DPS) stand for financial intermediation by banks. Therefore, RGDP = f(DPS, CPS) ………….. (3a)The functional relationship is stated as follows: RGDPt = a0 + a1DPSt + a2CPSt + e ………….. (3b)The variables in the models are defined thus:a0 = model intercepta1, a2, a3 = coefficientsDPS = deposits in banksCPS = credit to private sectorCOB = currency outside banksRGDP = real gross domestic product 131
  • 4. Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011e = Stochastic termt = time period4. Data Presentation, Analysis and Interpretation4.1 Introduction In this chapter, data is presented, analyzed and interpreted. The presentation is mostly tabular. Annualpercentage changes and ratios feature prominently in data analysis, while correlation and regression are further usedto verify the results of the analysis and test hypotheses. T-test is used to confirm the significance of the results.4.2 Data Presentation and AnalysisInsert table 14.2.1 Test of HypothesesTest of Hypothesis 1Hypothesis tested:H 0: Savings mobilized by Nigerian banks are not significant considering the amount of money in circulation.HI: Savings mobilized by Nigerian banks are significant considering the amount of money in circulation.Since: DPSt = f(COBt) = a0 + a1COBt + eFrom SPSS, the obtained model is DPSt = 745375.5 + 8.39COBt + eStandard error (SE): (298540.6) 0.76t value: (2.497) 11.01Beta Coefficients: 0.94Pearson’s Correlation Coefficient (R): 0.94 2Coefficient of determination (R ): 87.7%Degrees of freedom: 17Interpretation:It was assumed a priori that since deposits in banks (DPS) and currency outside banks make up currency incirculation that is an inverse relationship exists between them. Going by this, the result is not properly signed.Instead of a negative correlation as expected a positive relationship was obtained.This high positive correlation of 0.94 indicates that the variables move in the same direction against expectation. Itimplies that increases in deposits in banks do not necessarily reduce currency outside banks, it also shows that thegrowth in deposits seen earlier is not necessarily as a result improved efficiency in deposit mobilization by banks butcould be due to other factors like increase in money supply by the CBN.Test of Significance of Result:Since, tc > ttWe reject (H0) that savings mobilized by Nigerian banks are not significant considering the amount of money incirculation. Hence we accept the alternative Hypothesis (H1) that savings mobilized by Nigerian banks aresignificant considering the amount of money in circulation.Insert table 2 132
  • 5. Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011Test of Hypothesis IIHypothesis tested:H 0: Banks are not extending significant portion of their loan portfolio to the private sector.HI: Banks are extending significant portion of their loan portfolio to the private sectorSince: TBCt = f(CPSt) = a0 + a1CPSt + eFrom SPSS, the obtained model is TBCt = 73565.8 + 1.29CPSt + eStandard error (SE): (58637.4) 0.03t value: 1.26 49.5Beta Coefficients: 0.99Pearson’s Correlation Coefficient (R): 0.99 2Coefficient of determination (R ): 99%Degrees of freedom: 17Interpretation:The results generated by SPSS indicate a high positive correlation as a priori expected. This high positive correlationof 0.99 can be interpreted to mean that a reasonable portion of increases in total credit end up in the private sector.Test of Significance of Result:Since tc > ttThe null hypothesis (H0) is thereby rejected and the alternative (H1) accepted. This affirms that banks are extendinga significant portion of their loan portfolio to the private sector.Test of Hypothesis IIIHypothesis tested:H 0: Nigerian Banks are not making any significant contribution to the economy.HI: Nigerian Banks are making significant contribution to the economy.Since: RGDPt = f(DPSt, CPSt) = a0 + a1DPSt + a2CPSt + eFrom SPSS, the obtained model is RGDPt = 249017.0 + 0.24DPSt - 0.22CPSt+ eStandard error (SE): 15072.6 0.04 0.05t value: 16.5 6.3 (4.9)Beta Coefficients: 3.99 (3.09)Pearson’s Correlation Coefficient (R): 0.96 2Coefficient of determination (R ): 93%Degrees of freedom: 17Interpretation:The high correlation of 0.96 existing between the independent variables (DPS & CPS) and the dependent variable(RGDP) is in line with a priori expectations. It was anticipated that deposits in banks and credits to private sector 133
  • 6. Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011should play an important role with theoretical projections. To further strengthen this is the high coefficient ofdetermination (R2) which is 93%. This shows that the two factors taken together explain 93% of the increases inRGDP while other factors contribute marginal 17%.Test of Significance of Result:Since tc > ttWe also reject the hypothesis (H0) that Nigerian banks are not making any significant contribution to the economyand accept the alternative that they are.5. Summary, Conclusion and Recommendations5.1 Introduction The economic problems of Nigeria have necessitated this study that investigated the contributions of banks toeconomic growth. The study was also prompted by the lack of a common ground among scholars on the subject ofbanks’ role in economic growth. The clincher though was the dearth of studies investigating this relationship withrespect of sub-Saharan African countries in general and Nigeria in particular. This study used Nigerian banking datafor 1999-2008. The summary and discussion of its findings are presented below.5.2 Summary of the FindingsThe study discovered the following: i. That banks mobilize significant part of currency in circulation as deposits. ii. That banks lend out significant portion of their credit to the private sector. iii. That banks contribute reasonably to economic growth iv. Inefficiency of banks in deposit mobilization was also identified as currency outside banks significantly increased as banks’ deposits increased. This to a long extent explains the dualistic nature of the financial system.5.3 Discussion of FindingsOn the whole the study corroborates the position of those that hold that banks play an active role in economicgrowth through financial intermediation. As shown in this study, banks are able to mobilize a significant amount ofmoney in circulation as deposits, reduce currency outside banks and improve the performance of CBN’s monetarypolicy actions. Monetary policy operations of the CBN usually carried out to stabilize the economy in order toachieve certain economic objectives, of which growth is paramount. This is done by contracting or expanding thebalances held by banks. If most of these money balances are held outside the banking system then the actions of theCBN to contract or expand economic activities through the banks will be ineffective. It is in this light that theincreasing amount of currency outside banks should be checked.In most economies, especially the market based ones; the private sector is usually the engine of economic growth.This explains why the extension of most of its credits to the private sector by the banks is viewed in a good light.Such loans are normally used for productive purposes. Even when they are devoted to consumption, they stillindirectly influence economic growth. When demand increases, it encourages manufacturers to expand theircapacity to meet such increases and engenders economic growth.Banks through their intermediation role are contributing to economic growth. The Nigerian data used in this studyconfirms this position.5.4 ConclusionThis study investigated the role banks play in economic development of Nigeria. It examined the concepts ofbanking and economic development, and delved into the various shades of opinion on the subject of banks andeconomic development. Two extreme positions were observed: studies that accept that banks through intermediationcontribute to economic growth and those that don’t.On the basis of this conflicting positions, this study applied Nigerian data to assess the contributions banks’intermediation to economic growth. Results revealed that banks in Nigeria had mobilized significant amounts of 134
  • 7. Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011currency in circulation as deposits. It also showed that a reasonable portion of banks’ credit goes to the privatesector.Analysis confirmed that banks deposits and credit to private sector has a positive relationship with the country’s realgross domestic product (RGDP). The study therefore concludes that banks contribute 93% to RGDP given herintermediation function and invariably play an active role in economic growth in Nigeria.5.5 RecommendationsGoing by the findings of this study, the following suggestions are made to improve banks’ contributions to theeconomy. i. Banks should devise ways to mop up the increasing currency outside banks. This they could do by going into micro-financing and reaching out to less educated and rural populace. ii. Banks should be encouraged to continue to expand credit to the private sector. This the government can do by guaranteeing bank credit to the real sector. iii. Effective intermediation by banks should be encouraged by the regulatory authorities since this has been established to have positive relationship with economic growth. In this vein interest rates should be aligned in a way that it encourages deposit mobilization without discouraging investment.5.6 Suggestions for Further Research As fallout of this study some areas have been identified for further investigation. This includes the need toexamine the factors that influence currency outside banks (COB), as this variable behaved contrary to theoreticalexpectations. The implications of the contributions of non-bank financial institutions and the capital market foreconomic growth can also be investigated.ReferencesAkpan, I. (2008) Fundamentals of Finance (3rd ed.). Uyo: Abaam Publishing Co.Azege, M. (2009) The Impact of Financial Intermediation on Economic Growth: The Nigerian Perspective. Research Seminar Presented at the Lagos State University.Central Bank of Nigeria (2008), Statistical Bulletin. Dawson, P. J. (2003) Financial Development and Growth in Economies in Transition. Applied Economic Letters, 10(10), 833-836.Dornbusch, R & Reynoso, A. (1989) Financial Factors in Economic Development. American Economic Review, 79((2), 204-209.Gemech, F., & Struthers, J. (2003) The Mickinnon-Shaw Hypothesis: Thirty Years on. Paper Presented at Development Studies Association (DSA) Annual Conference on Globalisation and Development in Glasgow, Scotland.Gerschenkron, A. (1962) Economic Backwardness in Historical Perspective. Cambridge Harvard University Press.Global Oneness (n.d) Economic Growth: Origin of the Concept. http//www.experiencefestival.com/a/economicgrowthretrieved 16/3/10Goldsmith, R. (1969) Financial Structure and Development. New Haven, CT: Yale University Press.Levine R. (1997) Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688-726.Lucas, R. E. (1988) On the Mechanics of Economic Development. Journal of Monetary Economics, 22(1), 3-42.Masha, S. N., Essien, M. L., Musa, D. B., and Abeng M. O. (2004) Theoretical Issues in Financial Intermediation, Financial Markets, Macroeconomic Management and Monetary Policy in Nnanna, O. J., Englama, A., & Odoko, F. O. (eds) Financial Markets in Nigeria. Abuja: Central Bank of Nigeria.Mickinnon, R. I. (1973) Money, Capital Market and Development. Washington: The Breaking Institution. 135
  • 8. Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.2, No.4, 2011 Miwa, Y & Ramseyer, J. M (2000) Banks and Economic Growth: Implications from Japanese History. Discussion Paper No. 289, Cambridge: Harvard Law School. http://www.law.harvard.edu/programs/olin_center/ Montiel, P. J. (2003) Macroeconomics in Emerging Markets. Cambridge University Press. Schumpeter, J. (1934) The Theory of Economic Development. Cambridge: Harvard University Press. Shaw, E. (1973) Financial Deepening in Economic Development, New York: Oxford University Press. R. (1957) Technical Change and the Aggregate Production Function. Review of Economics and Statistics, 312-330. Stiglitz, J. (1994) Economic Growth Revisited Industrial and Corporate Change, 3(1), 65 – 110. Stiglitz, J. (2000) Liberalization, Moral Hazard in Banking and Prudential Regulation. Are Capital Requirements Enough? The World Economic Review, 6, 529-547. Tenant, D. (2006) Lectures on Mickinnon-Shaw Hypothesis, http://www.mona.uwi.edu/economics/downloads/ECON3010_lecture_notes_2006010372026.doc Appendix Credit to Private Sector, Federal Government, States and Local Government Real GDP 1990 - 2008YEAR Credit to private Credit to federal Credit to state & Credit to the Real GDP RGDP sector government local government economy growth Rate1990 26565.8 8702.4 0.0 35268.2 267550.0 -1991 30531.3 6813.5 0.0 37344.8 265379.1 (0.81) 136
  • 9. Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.2, No.4, 20111992 41236.0 5881.2 1253.2 48370.4 271365.5 2.261993 48200.4 29846.8 1498.9 79546.1 274833.3 1.281994 92017.3 39184.2 18883.5 133085.0 275450.6 0.221995 141670.9 20788.5 2650.0 165109.4 281407.4 2.161996 171642.2 47521.2 3293.3 222456.9 293745.4 4.381997 238187.7 39662.4 2374.1 280224.2 302022.5 2.821998 271720.7 49142.4 827.7 321690.8 310890.1 2.941999 350575.2 188576.4 2095.0 541246.6 312183.5 0.422000 480017.2 278130.1 7500.6 765647.9 329178.7 5.442001 817689.8 208270.5 26796.4 1052756.7 356994.3 8.452002 931137.5 467521.7 17326.6 1415985.8 433203.5 21.32003 1182964.1 378204.5 20234.9 1581403.5 477533.0 10.22004 1494610.9 609075.3 24631.8 2128318.0 527576.0 10.52005 1936619.8 630848.2 54526.6 2621994.6 5631931 6.512006 2528637.0 993530.4 80652.4 3602819.8 598221.6 6.032007 4332942.1 1960407.8 53475.9 6746825.8 634251.1 6.452008 7649635.0 1717149.9 40279.2 9407064.1 674889.0 6.41 Source: CBN Statistical Bulletin, 2008 TABLE 1: Total Bank Deposit (DPS) and Currency Outside Banks (COB), 1990 – 2008 (N million) Year DPS Currency Percentage of Annual Percentage Annual Percentage Outside Banks COB/DPS Increase in DPS Increase in COB (COB) 1990 68662.5 14951.1 21.8 - - 137
  • 10. Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.2, No.4, 20111991 87499.8 23120.6 26.4 27.5 54.61992 129085.5 36755.5 28.5 47.5 59.01993 198479.2 57845.1 29.1 53.8 57.41994 266944.9 90601.0 33.9 34.5 56.61995 318763.5 106843.4 33.5 19.4 18.01996 370333.5 116121.0 31.4 16.2 8.71997 429731.3 130668.0 30.4 16.0 12.51998 525637.8 156716.1 29.8 22.3 20.01999 699733.7 186456.0 26.6 33.1 19.02000 1036079.5 274010.6 26.4 48.1 47.02001 1315869.1 338671.2 25.7 27.0 23.62002 1599494.6 386942.3 24.2 21.6 14.32003 1985191.8 412155.2 20.8 24.1 6.52004 2263587.9 458586.5 20.3 14.0 11.32005 2814846.1 563232.0 20.0 24.4 22.82006 4027901.7 650943.6 16.2 43.1 15.62007 5809826.5 737867.2 12.7 44.2 13.42008 9167067.6* 892907.8* 9.7 57.8 21.0 Source: CBN Statistical Bulletin, 2008 & Authors Computation. *2008 figures are provisional. The table shows total bank deposit (DPS) and currency outside banks (COB). Except for 2008, which figures are provisional, the percentage of currency outside banks when compared to bank deposits maintained a double digit figure. It rose to as high as 34% in 1994 before it steadily declined to 9.7% in 2008. This is considered an indication of improved performance by banks in deposit mobilization compared to as much as 34%, 33.5%, and 31.4% in 1994, 1995 and 1996 respectively. This improvement is corroborated by the annual percentage increase in deposits observed throughout the period. The years 2008 and 1993 are outstanding in this regard with annual percentage increases in excess of 50% (57.8% and 53.8%). The 48.1%, 47.5%, 44.2%, 43.1% increases recorded in 2000, 1992, 2007 and 2006 respectively are also worthy of note. This improved performance by banks in deposit mobilization tended to be punctuated by increases in the growth of currency outside banks. Increases of over 50% were recorded from 1991 – 1994. After this, the currency outside banks still showed annual increases but at a rate lower than annual increases in deposit mobilized. This implies that banks were able to mobilize more deposits inspite of the growth in currency outside banks Table 2: Total Banks’ Credit to the Economy and Banks Credit to the Private Sector, 1990 – 2008. (N million) Year Credit to the Credit to Private Percentage of CPS Annual percentage economy Sector /TBC increase in CPS (TBC) (CPS) 1990 35268.2 26565.8 75.3 - 138
  • 11. Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 20111991 37344.8 30531.3 81.8 15.01992 48370.4 41236.0 85.3 26.01993 79546.1 48200.4 60.0 16.91994 133085.0 92017.3 69.1 91.01995 165109.4 141670.9 85.8 35.01996 222456.9 171642.4 77.2 21.21997 280224.2 238187.7 85.0 38.81998 321690.8 271720.7 84.5 14.11999 541246.6 350575.2 64.8 29.02000 765647.9 480017.2 62.7 37.02001 1052756.7 817689.8 77.7 70.32002 1415985.8 931137.5 65.8 13.92003 1581403.5 1182964.1 74.8 27.52004 2128318.0 1494610.9 70.2 26.32005 2621994.6 1936619.8 73.9 29.62006 3602819.8 2528637.0 70.2 30.62007 6746825.8 4732942.1 70.2 87.22008 9407064.1 7649635.0 81.3 61.6Source: Authors computation using data in Appendix IThe table above shows that banks in Nigeria devote a reasonable portion of their credit portfolio to the privatesector. Of the 19 years being reviewed, over 80% of total credit by banks went to the private sector in 6 of theseyears, more than 70% in 8 of the years and over 6% in the remaining 5 years. Since it is assumed that credit directedto the private sector is used for productive purposes. It is inferred from the table that banks are doing a lot in thisdirection.This line of thought is enhanced by the data revelation of an incremental trend in the credit to private sector. Thoughthese increases fluctuated, none was less than a double digit with the 13.9% of 2002 being the least. Figures as highas 91%, 87.2%, 70.3% and 61.6% were posted in 1994, 2007, 2001 and 2008 respectively. 139